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Rice Hospital acts to rein in deficit

WILLMAR -- As inpatient volume at Rice Memorial Hospital continues to decline and an operating deficit persists, hospital officials have redoubled their efforts to find ways to improve the financial situation.

"We are looking at anything and everything to get things turned around," Mike Schramm, the city-owned hospital's chief executive, told the board of directors at a meeting Wednesday evening.

"We have to think outside the box and be creative, knowing that things have changed significantly in how we take care of patients," Schramm said.

As of the end of June, Rice had amassed a $1.1 million operating loss. The deficit is blunted by revenue from other hospital-related ventures, principally Willmar Medical Services. But even with non-operating income added to the picture, the hospital still was nearly $240,000 in the red at the halfway point of the year.

Hospital officials point to the steep drop in inpatient business as the main reason.

Two years ago, patient volume was evenly divided between inpatient and outpatient services, said Bill Fenske, chief financial officer.

This year, less than a third of the volume is inpatient and all the rest is outpatient, he said. "It's changed that fast."

The problem for Rice is that reimbursement rates for outpatient care are lower than for inpatient services. If inpatient numbers fall below a certain threshold, it's much more of a struggle to break even, Fenske said.

"You can't adjust fast enough in order to make up those differences," he said.

By the end of May, this gap amounted to $1 million, he said.

Hospital officials said inpatient volume showed signs of improvement in June and through the current month. Surgeries in particular are up and the daily census, which had fallen to just under 30 during May, was back into the mid-30s, Fenske said. If these trends continue, Rice will likely be able to register a profit for July, he said.

Rice officials aren't waiting, however, for further signs of recovery.

Although the most recent month was more positive, "it doesn't diminish what we're seeing in the shift in business," Schramm said. "It's tough to react to such a significant decline. It takes a lot more outpatient volume to make up for the lack of inpatient volume."

Over the past two months, hospital managers have been holding a series of meetings to identify ways to control costs.

Schramm said they're looking at everything, from tightening the hospital's inventory levels to more efficient staffing.

"We've already implemented some things," he said.

As hospital officials look ahead to launching the 2011 budget process next month, they're already talking about how to formulate their projections for patient volume. This year's budget is based on an average daily census of 40 inpatients but the budget next year might need to set that number at 30, Fenske said.

"Hopefully at 30 we can maybe try to get ahead of this," he said.

There are two bright spots in the hospital's financial situation. Expenses so far this year have been running slightly behind budget, suggesting that efforts to control costs have been helping. Rice also has managed to maintain a positive cash flow and balance sheet, two key indicators of relative financial strength.

Anne Polta

Anne Polta covers health care, business/economic development and general assignment. Her HealthBeat blog can be found at Follow her on Twitter at @AnnePolta.

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